Owners in gas pipelines, led by Allianz and Abu Dhabi, are
suing the government in Oslo over cuts in tariffs for fuel
transportation, while oil and gas producers are fighting to
avoid a tax increase on extraction. They say 120 billion kroner
($20 billion) in combined revenue and investments are at stake.

“The tax increase on the Norwegian shelf comes at the
worst possible time as oil companies all over the world are
struggling with cash flow and value creation,” Jarand Rystad,
managing partner at Oslo-based consulting firm Rystad Energy AS,
said by e-mail. “The best would be to put the whole project
back in the drawer, so Norway can preserve its reputation as an
oil country with a stable framework.”

The Conservative-led government, which took power in
October, is defending its decision to commit to the previous
administration’s plan to cut tariffs and raise taxes. A proposal
in December to exempt some projects from the tax increase
doesn’t go far enough and risks thwarting about 80 billion
kroner in drilling projects as companies struggle with rising
costs and flat oil prices, the industry says. The tariff cuts
threaten to crimp revenue from gas transports by 40 billion
kroner, the operators have said.

Attractive Stability

While the new government has said it’s looking into the
consequences of the tax increase and isn’t ruling out future
changes, it’s justified in not undoing the previous
administration’s work, said Nordea Markets’ oil and commodities
analyst Thina Saltvedt.

“You can’t change tax regulations every four years,” she
said in a phone interview from Oslo yesterday. “If it changes
all the time it creates a lot of uncertainty, which will make it
unattractive to come here.”

Both the government and the opposition say the tariff cuts
will promote exploration and help western Europe’s largest gas
producer to sustain output.

The criticism from investors comes after Norwegian
Petroleum and Energy Minister Tord Lien said this month he would
seek to attract more companies to help develop resources as
Statoil cuts spending.

Oil Fund

Norway gets almost a quarter of its economic output from
oil and gas. It channels the income into an $830 billion
sovereign wealth fund to avoid overheating the domestic economy.
Norway says it wants to support its oil industry after crude
production slid for 13 consecutive years amid dwindling North
Sea deposits.

Allianz, Europe’s largest insurer, this month wrote a
letter to Prime Minister Erna Solberg asking for a meeting after
the tariff cuts led to “significant” losses and writedowns on
its 6.1 billion kroner ($1 billion) investment.

The insurer said the cuts have damaged trust in Norway,
potentially harmed investment in infrastructure in general and
hurt German and Norwegian citizens.

“As the leader of a new government, you have the
opportunity to take a fresh look at the adjustment of tariffs
and possibly reverse an incomprehensible discrimination of
committed long-term investors,” Allianz Chief Executive Officer
Michael Diekmann and executive board member Maximilian Zimmerer
said in the letter dated Feb. 7. The correspondence was obtained
by Bloomberg through a freedom of information request.

‘Forbidden Discrimination’

The pipeline investors, which also include funds run by UBS
AG (UBSN) and Canadian pension funds, are also protesting last year’s
tax increases and the failure to give exemptions to 5.9 billion
kroner ($980 million) in projects.

Failing to exempt constitutes a “discrimination forbidden
under Norway’s legal commitments to the European Economic
Area,” the owners said in a letter to the Finance Ministry
posted on the government’s website. Four other Gassled owners,
Statoil ASA, ConocoPhillips, GDF Suez (GSZ) and DONG Energy A/S, also
signed the letter to the Finance Ministry.

The tax exemptions are also seen as too narrow by oil
producers, including Statoil, Conoco and Royal Dutch Shell Plc.
Planned drilling projects estimated to cost 80 billion kroner
could be scrapped if they’re not exempted, the Norwegian Oil and
Gas Association said last week.

Last year’s tax change reduces the share of investments
that companies can deduct from their income while keeping
petroleum-industry taxation at 78 percent.